Michael Burry Sounds the Alarm on Payments Sector – XYZ, PYPL, FOUR

The Big Short investor Michael Burry published an 8,000-word analysis on the payments sector, with a focus on Block (XYZ), PayPal (PYPL), and Shift4 (FOUR). He argued that the sector exhibits ‘minimal organic growth’ and relies on acquisition-driven expansion, in his Substack post.

Burry contends that several firms in the space use “accounting tricks and misrepresentations” to inflate earnings, making much of the sector a high-risk, “too hard” universe for long-term value investors.

These Are Burry’s Key Findings

• Minimal organic growth – Burry noted that growth within payments companies largely stems from acquisitions rather than internal expansion. This pattern signals structural barriers to sustained revenue and margin growth.
• Acquisition-driven growth and market skepticism – Burry believes that the stock market disfavors growth stories built on frequent acquisitions. They are viewed as signs of slow organic progress and potential overpayment for targets.
• Accounting and transparency concerns – Burry alleges that certain firms use “M&A accounting tricks and misrepresentations” to bolster earnings and mask weak profitability and cash flow.

Burry’s Take on Payments Companies

PayPal – Burry expresses skepticism regarding PayPal’s pricing power and corporate culture, suggesting that reported earnings exceed sustainable cash generation. He stated that PYPL is incompatible with his value-investing framework and heightens risks to long-term shareholder value.

Shift4 – Burry stated that he would consider the stock at $30 per share, which implies a heavy discount from the current trading level of $65.91 per share. He cited governance concerns but also acknowledged that Shift4’s internal R&D efforts are not without merit, though they may not offset broader structural risk.

Block – Burry acknowledged that Block has certain favorable aspects and credible management. He warns that the remaining uncertainties and details do not present a compelling value proposition for him at current levels. For context, XYZ stock is trading close to $65 per share, at a major discount to its all-time high of $94.25.

Ending Thoughts

To conclude, Burry advises investors to label the payments sector in the “too hard” pile and pivot elsewhere, given the sector’s heavy reliance on acquisition-fueled growth strategy that undermines sustainable value creation.

We used the TipRanks Stock Comparison Tool to see how these companies perform on different parameters. Currently, Wall Street has assigned a “Strong Buy” consensus rating to Block stock, while they remain cautiously optimistic about Shift4 and stay sidelined on PayPal.